Acton developer accused of false profits.

A recent press release from the Massachusetts Attorney General’s office has cast another stain on the already tarnished 40B development law. The 40B development law allows contractors to ignore most zoning laws in return for designating a given percentage of the developments units as affordable housing.

According to the press release and a complaint filed in Middlesex Superior Court, Martha Coakley’s office has alleged that Acton based Crossroads development, its owners and a related company, overstated expenses and conducted a sham real estate transaction in order to enrich themselves beyond the profits allowed under 40B and beyond their agreement with the town of Acton.

The state is alleging that James Fenton and Michael Jeanson, through companies owned by them or associated with their businesses, overcharged themselves for site work and thus overstated the developments cost and thereby understated the profits. It is furthermore alleged that they sold one of the units to a company they own and then resold it for a $50,000 profit and that this profit was not disclosed in the calculation of the overall development profit.

By law, any excess profits were supposed to have been paid into Acton’s affordable housing fund. The law allows the Attorney General to recover, on behalf of the town, triple damages and civil damages.

According to a May 2006 letter from the state Inspector General to the Acton Board of Selectman and the Town Manager, the state estimated that the developers should have paid $763,000 to Acton’s affordable housing fund because of excess profits. They paid nothing.

There has been a groundswell of efforts, at the state and local levels to repeal or modify the 40B law. Incidents like this provide additional support for those efforts. The 40B law was originally created because some wealthy towns in Massachusetts stonewalled affordable housing and something did need to be done.

Where is the problem? Is it with the 40B law or with the developers? According to John Belskis, chairman of the coalition for the repeal of 40B, it is a little of both and then some. When I spoke with Mr. Belskis, he first pointed out that the 40B law is actually very short. Most of what people think is 40B law is actually regulations written by the state DHCD (Department of Housing and Community Development).

Mr. Belskis said that ‘although the DHCD like to point out that 50,000 housing units have been created under 40B, they don’t have deed restrictions in perpetuity so about 20,000 of the units will convert to market rate in the next few years.”

When asked about developers who take unfair advantage of the 40B law, John said the bigger problem is “the people from the state who are supposed to be watching this are not.” He pointed out that the same developers from Crossroads were accused of $2.4M in excess profits from a development in Boxborough. They eventually settled for $1.2M. He asked “why is the state giving 40B permits to developers that had problems like this with previous 40B’s?”

Acton has sued the developers just like Boxborough did. The state inspector General has written scathing reports of 40B developments and the Attorney General’s office has filed lawsuits against developers who gained excess profits. But Belskis says “where was DHCD when this was going on?”

40B was first created as a regional planning law with 5 paragraphs about low and moderate income housing. The DHCD has written dozens of pages of regulations, making an honorable intention, very complicated and many say biased towards developers. The effort on Beacon Hill continues to reform or repeal 40B.